Lesson Learnt from Parabolic Curve – Did you Get Burnt?

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Be careful when you see any stock chart shows Parabolic Curve. The price goes up very fast and comes down even faster. I posted 3 stock stocks here from Genting Singapore, Z-Obee and HL Asia and you can see the commonalities of the chart patterns.

  • Stock price climb very fast in a very short period. Chart gradient is more than 45 degree when you zoom out the chart by expanding the time frame.
  • When the chart breakdown,  the stock price plunges close to 50% Fibonacci Retracement Level within one or two months.

 

Lessons Learnt from this Parabolic Curve Chart Pattern

  • You can make fast money by riding on Parabolic Curve but you must know when to get out.
  • The above three charts start crossing down the 20D MA, that is the 1st signal to get out. When crossing 50D MA, that is the 2nd signal to take profit or cut loss.
  • When trading stock with Parabolic Curve, must keep an very close eye on the chart pattern every day.

Feel free to leave a note here if you see any Singapore Stocks are showing Parabolic Chart Patterns.

If you are still not clear what is a Parabolic Curve is about, I have compiled this pattern in my Breakout Patterns Quick Reference Guide which is a little token of appreciation when you sponsor this website.

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Where and how did I learn my investing knowledge from?

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I received some emails asking me recently where I learned my investing knowledge from. I tried to summarize my learning steps as simple as possible for easy reference.

I started investing as a newbie six months ago. I had no idea where to start and how to start initially. Basically my learning of investing knowledge divided to 3 stages:

(1) Reading Books
(2) Attending Investing Courses
(3) Put what I have learned from the books and course into practice.

There are a few books to help me get started. These books are easy to read to give me an overall idea what is stock investing is about and what other knowledge I need to acquire before start investing or trading. I suggest reading these books in sequence so that you will not get lost and get confused.

Reading Books

1. Handbook for Stock Investors by Goh Kheng Chuan. This book is for newbie who has totally NO idea on what is stock investing about. It covers very basic information like:

a. What is stock market?
b. What is a broker? How to open a trading account? Who are the brokers and where to find them?
c. What is a contract statement & confirmation note?
d. How and where to pay for the shares?
e. How to use Central Provident Fund (CPF) for investment? How to apply for CPF Investment Account?
f. What are the Terms and Procedures for placing an order? When is the Trading hour?
g. What are the factors affecting stock price?
h. What is Technical Analysis? Introduction of Basic Technical Indicators.
i. Introduction of Basic Patterns of a chart.
j. Basic information of picking a right stock.
k. What is Blue chip stock and penny stock?
l. Basic financial information of a stock like PE Ratio (Price Per Earning Ratio), EPS (Earning Per Share), Dividend Yield, ROE (Return on Equity), etc.
m. How to read an Annual Report of a company. Brief Introduction of financial statement like Balance Sheet (B/S), Profit & Loss Statement (P&L) and Cash Flow Statement.
n. How to derive the important ratio like P/B Ratio (Price to Book ratio), Current Ratio, etc. from the Financial Statement.
o. What is New Shares Issues? What is IPO (Initial Public Offerring)? How to subscribe for these shares?
p. How to use the internet for your investment?

2. Profit from the Panic by Adam Khoo, Conrad Alvin Lim & Ryan Huang. This book is suitable for beginner and intermediate investors, specially written how to make profit from stocks market during this recession. It is quite easy to read and understand. The book covers:

a. How did the financial collapse all begin? Who are the victims of this crisis?
b. Understanding on how the stock market works.
c. Looking back the past 50 years of stock market history and derive some conclusion.
d. How to buy the markets & sectors during this crisis? How and where to identify those markets and sectors?
e. How to find great under value stocks amidst the chaos?
f. How to find market bottoms and tops using the chart patterns?
g. How market operating in a cycle?
h. Introduction of critical economic data (e.g. Interest Rate, GDP, Non-Farm Payroll, CPI, ISM Index) that influence the stock market.


3. Secret of Millionaire Investors by Adam Khoo & Conrad Alvin Lim. This book is a good reference book for stocks investors as it covers all necessary knowledge & investing strategies on how to make profit from the stock market. More importantly, it is quite easy to read and understand.

a. What are the risks involved of investing in the stock market?
b. Which investment vehicle gives the highest return?
c. The idiot-proof way of making money.
d. Introduction of various ETF (Exchange Traded Fund).
e. What is Value Investing? Step by step guide on how to select a good company with wide economy moat, evaluate a company (business prospect and financial prospect), how to do research of a company, etc.
f. How to calculate Intrinsic Value (IV) of a company? How to value a company using different models like DCF (Discounted Cash Flow) model, PE ratio, PEG ratio, etc.
g. When to buy and when to sell?
h. Introduction of Candlesticks and Technical Indicators for Momentum Investing.
i. Introduction of Options. Using options to reduce risk and boost return.

4. Handbook on Forex Trading by Nicholas Tan. I use this book to understand more on the candlestick pattern and technical analysis. Topic covers:
 a. Introduction of FX (Foreign Exchange).
b. Understanding FX basics.
c. Candlesticks Introduction (Reversal Pattern like Morning Star, Evening Star, Bullish Engulfing, etc)
d. Chart Patterns (Head & Shoulders, Double Top, Flag & Pennant, Triangle, etc)
e. Using Technical Indicators in FX trading.
f. Putting all together (combining patterns and indictors) to increase the success rate of trading.

Attending Investing Courses

I was not able to understand 100% what have been written in the book and thus made me decided to sign up a course to make my learning more effective and efficient. Everything written in the book remain as information and does not really necessary useful until we apply it. Knowledge without proper application is a waste. It is a disaster if we apply the knowledge wrongly. There are lots more minor things that I pick up from the course which I don’t find it in the book. Besides, attending right courses speed up my knowledge acquisition and shorten the learning curve. However, one thing to make sure is to select the course that suitable to one’s needs and investing styles. Not all courses are suitable to everyone. If you want to find out more what course I’ve attended, you can drop me an email at marubozu1688@gmail.com. I don’t intend to do any advertisement of the courses here because that is not my intention.

Putting everything into practice

After reading books and attended the courses, I found myself still not able to make good analysis and make profit from the stock market. I start to realize that Knowledge without actual application is nothing! I then decided I had to be hands on to start analyzing the stocks by reading annual report, calculating intrinsic value, drawing support resistance lines, applying Fibonacci Analysis, etc. The more stocks I analyzed, the more I started to realize how insufficient the knowledge I had to do a proper stock analysis. I went back to refer to the course notes, flipping books, reading other traders’ analysis report and asking my course mates to double check my analysis.

It is quite tough for a start but after a few rounds of practices and received some great feedbacks of my analysis in the blog, my stock analysis skills have improved drastically. I am able to do a quick scan on the companies’ financial statement to screen and shortlist good stock, do quick assessments on the companies’ financial health status, recognize some chart patterns and candlesticks pattern without referring too much from the books.

I compile some useful website for quick reference and education purposes.

Internet Resources (Free)

1. Fundamental Analysis  http://www.investopedia.com/terms/f/fundamentalanalysis.asp

2. Technical Analysis http://www.investopedia.com/terms/t/technicalanalysis.asp

3. Candlesticks  http://www.investopedia.com/terms/c/candlestick.asp

4. Financial Ratio Formula & Explanation http://www.bizwiz.ca/ratio_calculation_formulas/financial_ratios_formulas_and_explanations.html

Continue ReadingWhere and how did I learn my investing knowledge from?

How do I plan my exit point?

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Selling off requires lots of discipline & determination because this decision determine whether we lose money, make money or make less money. It is not uncommon that we fail to execute or change of the exit plan depends on what we see, what we hear and what we feel.

Below are my “own guidelines” or “rules” when selling off my positions:

  • When the profit target is met (for momentum investing) or the stock price exceeds the intrinsic value (for value investing). I normally sell off 50% of my position to take profit and leave 50% to let the stock price continue its course as long as there is not trend reversal spotted in the chart.
  • When the stock price reverse its trend when the reversal pattern (e.g. head & shoulder, double top or triple top, etc) is formed.
  • When the stock price starts the down trend & the stock price below 20D, 50D and 200D MA. This is a very tough decision to make to cut loss and I have to keep reminding myself that I can buy the stock back at lower price next time! I look for opportunity to sell when the stock rebounds on a down trend.

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  • When the price move sideway for a long time unless this is a dividend stock. I can use my money to invest in other stocks for better gain.
  • When there is a fundamental change in the stock and I don’t foresee the stock price will rise in the near future. I sold Creative Technology which close to 40% loss because Creative Technology has lost its competitive advantage in Sound Blaster and its MP3 products.

Though I have worked out my entry and exit points, I still have to take full control over my emotion of Greed and Fear and need to have very good discipline to stick to my trading rules. I am learning to control this emotion every day & every trade, having buddies like Wilson & Daniel help me a lot in improving in this aspect.

Continue ReadingHow do I plan my exit point?